Guide on how to Calculate Tax under GST

The below table illustrates the difference in tax amount and benefit of input tax credit which is there for dealer/ manufacturer:

*for this illustration it has been assumed that the rate of GST is 12% which will equally be distributed among state and central government. Here s an example of GST tax calculation.

PARTICULARS

TAX AMOUNT AND VALUE UNDER CURRENT LAWS

TAX AMOUNT AND VALUE UNDER GST LAW.

Value to manufacturer

Production cost

200000

200000

Add Profit Margin @10%

20000

20000

Add excise duty @12%

26400

Total cost of production

246400

220000

Add VAT @12.5%

30800

Add SGST @6%

13200

Add CGST @6%

13200

Invoice value for manufacturer

277200

246400

Value to wholesaler

Cost of goods

277200

246400

Add profit margin @10%

27720

24640

Total Value

304920

271040

Add VAT @12.5%

38115

Add SGST @6%

16262

Add CGST @6%

16262

Invoice value to wholesaler

343035

303564

Value to Retailer

Cost of goods

343035

303564

Add Profit margin @10%

34304

30356

Total Value

377339

333920

Add VAT @12.5%

47167

Add SGST @6%

20035

Add CGST @6%

20035

Invoice value to retailer

424506

373990

Assessment: Guide on How to Calculate GST?

From above illustration, we can come to 3 major conclusions

Reduction in costs: Due to the reason that major taxes (Excise duty, VAT, Service Tax) subsume to single tax, the cost of goods reduce drastically to retailers, wholesalers and manufacturers. If we talk about retailers, the cost of goods has decreased from 343035 in previous tax laws to 303564 which is a significant decrease of 11.50%. Similarly, there would be a decrease in production cost too in future as there would be better logistics at reduced prices.

Subsuming of Excise Duty: Excise duty is charged on the capital goods which are used by the manufacturers for the purpose of production of finished goods. Now, with GST into effect, it is subsumed to single tax which will be beneficial to the consumers. This will also help in reduction of formalities of taxation as one needs to be assessed at one level only. This will also reduce the cascading effect.

Reduction in Input Tax credit: With GST there is supposed to be decrease in input tax credit for retailer and wholesaler due to the effect of reduced cost.

Tax Calculations for Inter-State sales

While there used to be a levy of CST over and above the excise duty and VAT when there used to be a inter-state sale of goods, with introduction of GST, IGST has replaced all the taxes involved in the process.

For example: Let’s suppose a retailer supplies goods amounting Rs ten lakh from Mumbai to Pune. As per previous laws, VAT @ 12.5% amounting to Rs 125,000 and CST @ 2% amounting to Rs 22,500 would have been levied which makes the total value to the retailer to be Rs 1,145,000. Now, for the same transaction if we talk about GST there will only be a levy of 12% IGST amounting to Rs 120,000 which will make the value to be Rs 1,120,000 for the retailer.

*Now, with the above text it is quite clear that costs will definitely reduce for retailers, dealers and manufacturers with GST getting into effect for both inter-state and intra state sales.